Business Mistakes – Killing Your Cashflow

Last post: May 19, 2014

Small businesses know the problem all too well. Many customers like to stretch out payment periods as long as possible in order to ease their own cash flow issues, and this can have a severely negative effect on the health of your own business.

Counting your chickens

Small businesses know the problem all too well. Many customers like to stretch out payment periods as long as possible in order to ease their own cash flow issues, and this can have a severely negative effect on the health of your own business.

It's important never to count revenue as in just because you have sent an invoice. If a customer is late in paying or fails to pay altogether, it can be a long an arduous process to get that money out of them.

Paying early

It's a good thing to pay bills early isn't it? Well, unless there's a discount for early payment, then you could be doing yourself more harm than good. Early payment will negatively affect your cash holdings earlier than is necessary. Even a discount may not be appropriate as negative effects of a short term impact on your balance sheet could outweigh any long term cost savings. Before deciding to pay early and accept a discount you should carefully weigh the pros versus the cons. Remember – maintaining a healthy balance sheet for as long as possible will help your business through that early growth phase.

Extending credit

Don't extend credit to any customers unless you know they are credit worthy. When you do this you are effectively lending them money, so it makes sense to have a clear idea about whether or not they intend to pay it back.

You should do full due diligence looking into their company history and credit history. Even if something appears to be genuine there are some fraudsters who set up apparently legitimate companies in order to secure credit for goods. When the time comes to pay up they vanish into thin air. This is called long or short firm fraud and to avoid falling into this trap you should verify the history of any company you supply and find out who they have done business with in the past.

Marketing

This is true – marketing can be vital for your business. But too much of it, used in ways which are not effective, can be damaging. Some firms just use marketing blindly by advertising in the local press, radio or TV without properly analyzing which format is working.

If you persist with advertising strategies in areas which are not performing well, you'll be sucking the financial life out of your business.

Misjudging your price

This is a difficult balancing act for any business – knowing where to pitch your pricing. Go too expensive and customers will simply steer clear of your product, no matter how good it is, but it can be a mistake to go too cheap. A common mistake businesses make is to undervalue the product or service they are offering. This can tighten margins which can become a serious issue if you find costs are higher than you thought. It's not impossible to have a product that sells like wildfire and find you're still losing money.

So, there you are, five simple mistakes which can easily have a negative impact on your cash flow. If your business gets into trouble and requires a service such as a small business cash advance, head to our site now.

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